Climbing up the Social Ladder

by Site Author

A new working paper out this week describes trends in inter-generational mobility. Chetty, Hendren, Kline, Saez, and Turner measured the correlation between parents’ rank in the income distribution and their children’s rank in the income distribution. That is an extraordinarily difficult thing to do; it is rare to have data on two generations’ incomes at once. The authors managed it by relying on de-identified tax records.

The study’s conclusions have garnered some attention, because they seem counterintuitive. The authors find that inter-generational mobility has stayed constant over the years. As they put it:

The probability that a child reaches the top fifth of the income distribution given parents in the bottom fifth of the income distribution is 8.4% for children born in 1971, compared with 9.0% for those born in 1986.

Perhaps the best figure in the paper is below.

Image

The figure shows the tight relationship between children’s income rank and their parents’ income rank. But the relationship does not appear to change based on the child’s birth year. We see roughly the same correlation for children born in 1971 as for those born in 1982.

At the same time, inequality has been on the rise. Moving from the 10th percentile of the income distribution to the 11th percentile now means a larger rise in income than it used to.

The authors have an eloquent way of describing how inter-generational mobility may stay fixed even as inequality rises.

A useful visual analogy is to envision the income distribution as a ladder, with each percentile representing a different rung. The rungs of the ladder have grown further apart (inequality has increased), but children’s chances of climbing from lower to higher rungs have not changed (rank-based mobility has remained stable).

What to make of this? On the one hand, inequality is on the rise. On the other hand, the chance that a child earns relatively more than their parents has not changed. (The latter finding has been confirmed by at least one other study.)

The authors drop an intriguing explanation in a footnote at the end of the paper.

One potential explanation is that other countervailing trends – such as improved civil rights for minorities or greater access to higher education – have offset these forces.

I suspect that they relegated this explanation to a footnote, because it is sheer speculation. Still, one has to wonder whether they are right.